In two weeks Nigeria will release its rebased gross domestic product (GDP) statistics. The new numbers will show Nigeria’s GDP rising by 65 percent to $432 billion, meaning the country has overtaken South Africa as Africa’s largest economy.

The figure confirmed by sources at the National Bureau of Statistics (NBS) suggests that the Nigerian economy has been hugely underestimated over the years.The NBS is seeking to change the calculations of Nigeria’s GDP using a new base year of 2010 to give a better indication of the size and composition of its economy.

Most governments overhaul GDP calculations every few years to reflect changes in output and consumption, such as telecoms, financial services and internet usage, but Nigeria has not done so since 1990 (24 years) suggesting that the previous GDP framework underestimated economic activity.

Some have called the rebasing of Nigeria’s GDP being undertaken by the NBS an exercise in financial engineering but we beg to differ. We believe the rebasing is imperative, and that the updated numbers tell the accurate picture which will have new implications for investors and the geopolitics of Nigeria’s place in Africa.

Nigeria’s rebased GDP of $432 billion compares with South Africa’s GDP of $370.3 billion at year end YE 2013. In a sense Nigeria’s current economic output is underperforming its potential output with its large population of 170 million, which is 3 times the size of South Africa’s at 52 million.

Certain data points, however give us an insight into the drivers of economic output that has allowed Nigeria to emerge as Africa’s largest economy.

Nigeria overtook South Africa in 2012 to become sub Sahara Africa’s (SSA) largest cement market with installed capacity of 28 million metric tons per annum (mtpa) compared with SA production of 18.3 million mtpa.

Nigeria is Africa’s largest telecoms market with 121.8 million active mobile lines (Oct. 2013), compared with South Africa’s 40 million. Nigeria had 56 million internet subscribers as at Sept. 2013, compared with South Africa’s 11 million. Telecoms contributed 8.53 percent to Nigeria’s GDP (Q1 2013), up from negligible levels in 1990, which is the base year for current GDP statistics.

While oil and gas growth has been anemic in recent years, Nigeria still pumps Africa’s largest oil output, producing 2 million barrels a day. Meanwhile Nigeria exported some 19.6 million metric tons of LNG in 2012, the fourth-largest output worldwide, according to data compiled by research firm IHS.

Nigeria’s services sector (Nollywood, entertainment, music, hotels, retail… etc) have mushroomed in recent years and has not been effectively captured by current GDP statistics, leading to an invariable under-estimation of personal consumption figures. Household consumption expenditure (HCE), the largest component of GDP by expenditure is often equivalent to 60-70 percent of total GDP. NBS sources note that the most recent HCE figures already exceed current-non rebased GDP of $283 billion.

In the current GDP time series Agriculture is said to make up 40 percent of the economy. This is most likely outdated, and based on a 1990’s economy whose structure has changed significantly. Once rebased GDP statistics are released, it will show that even as Agriculture’s aggregate numbers have grown, it will probably make up less than 30 percent of GDP.

South Africa’s economy grew by 1.9 percent in 2013, compared with 6.81 percent real GDP growth in Nigeria. Its current account deficit widened to 6.8 percent of GDP in the third quarter of 2013, compared with a C/A surplus of 5.2 percent of GDP (YE2013) for Nigeria.

Finally since GDP is a country’s domestic output measured by or converted to dollars, a look at the performance of both countries’ currencies helps to complete the story. While the Nigerian Naira has been largely firm (down 1.9 percent vs. the dollar in the past year) the SA rand has lost 23 percent versus the dollar since 2013.The rand weakened past the 11 per dollar mark last Friday for the first time since October 2008.

2014-01-28